In New York, the rent doesn’t have to be ‘too damn high’

The house in which I grew up was built in 1913. It was part of a building boom in New York City’s outer boroughs fueled by the rising incomes, and rising aspirations, of erstwhile tenement-dwellers. As jam-packed Manhattan neighborhoods like the Lower East Side emptied out, once-bucolic stretches of Brooklyn, Queens and the Bronx were transformed with dizzying speed.

A century later, neighborhoods like the one I grew up in seem frozen in amber. The faces are different, to be sure, and so are the languages spoken by the locals. Crime has gone down and property values have gone up, and New York City is as desirable as it’s ever been. Yet we’ve had nothing like the building boom of the 1910s and 1920s that transformed the face of the city. Millions of low- and middle-income New Yorkers thus find themselves squeezed by skyrocketing rents, and hundreds of thousands of others who want to make their home in New York can’t afford to do so.

In fairness, New York Mayor Michael Bloomberg has presided over the revitalization of the city’s waterfront, where new buildings really are sprouting up. Brooklyn’s Barclays Center will eventually be surrounded by new housing units, and an ambitious new mixed-use neighborhood is planned for Manhattan’s West Side.

But even when these various developments come to fruition, demand for housing in New York will continue to outstrip supply by a wide margin. The inevitable result of New York City’s failure to allow for more housing is gentrification and displacement. If you don’t build enough new housing in the most convenient and amenity-rich neighborhoods, affluent professionals will settle in adjacent neighborhoods, bidding up rents and driving people of more modest means out of their neighborhoods and in some cases out of the city. This means longer commutes and less access to economic opportunity for those who need it most.

One irony of New York City politics is that the most adamant opponents of gentrification tend to also be the most adamant opponents of development, the only force that can contain its spread. Recently, Dylan Matthews of the Washington Post surveyed the housing policies backed by New York’s leading Democratic and Republican mayoral candidates. All of them favor inclusionary zoning, in which developers are obligated to set aside a certain number of housing units for low- and middle-income households. These programs are a boon to those lucky enough to secure an affordable housing unit. But as Robert Ellickson first explained over 30 years ago, inclusionary zoning mandates effectively raise the cost of development, and in doing so, they tend to limit housing opportunities for low- and middle-income households overall. Worse still, inclusionary zoning mandates tend to be packaged with property tax abatements for developers that are eating away at the city’s tax base.

So what might New York do to really make housing more affordable? I asked that question to David Schleicher, a law professor at George Mason University and a leading expert on the politics of local land-use regulation.

The first and most obvious thing to do is to broaden area in which housing can be built. For example, Schleicher and Roderick Hills Jr. of New York University Law School observe that cities like New York use “non-cumulative zoning” to dedicate desirable locations to low-value industrial uses. They propose allowing developers to replace empty warehouses, barely-used shipping facilities, and heavily subsidized factories with housing. Historical preservation districts severely restrict new housing development in many of New York City’s most desirable residential neighborhoods, which has contributed to rising housing prices. Though hardly anyone proposes getting rid of historical preservation districts entirely, the Harvard economist Edward Glaeser has made a strong case for limiting their growth.

New York can also look to its own past, and to cities around the world like Tokyo and Hong Kong, and expand its turf through landfill development. Vishaan Chakrabarti, a veteran of the Bloomberg administration and director of the Center for Urban Real Estate at Columbia University, has championed the creation of an entirely new neighborhood (“LoLo”) that would stretch from the Battery at Manhattan’s southernmost tip to Governor’s Island. Bloomberg has himself floated the idea of new landfill neighborhood on Manhattan’s eastern edge, which he has dubbed “Seaport City.”

In an ideal world, zoning laws would be straightforward enough that developers could navigate them fairly easily without too much case-by-case wrangling with local bureaucrats. New York City’s zoning laws, alas, are far from straightforward. The Bloomberg era has seen an unprecedented number of rezonings and upzonings (increases in allowable density) to allow new development to go forward. Yet it has also seen a great deal of downzoning (decreases in allowable density) and contextual rezoning that has reduced the ability of people to build new housing without seeking special permission in neighborhoods across the city. These downzonings are pushed by neighborhood groups that oppose new development, but they rarely meet with resistance from people who will have to pay the higher housing costs that are the result of downzonings.

Large-scale developers can get around these restrictions when they want to build by making direct appeals to City Hall and going through the complicated and expensive zoning amendment process. But small-scale developers, or individual homeowners who want to build a new housing unit on top of their brownstone, don’t have the time or the money to do the same. To avoid situations in which upzonings are outweighed by downzonings, Schleicher and Hills have proposed citywide “zoning budgets.” The idea is that every downzoning in one neighborhood will have to be balanced by an upzoning in another until citywide goals for housing affordability are met.

Opposition to new development, in New York and elsewhere, usually flows from the sense that current residents won’t actually benefit from an influx of new arrivals. The fear is that big new developments will lead to traffic congestion and crowded subways, and much else besides. With this in mind, Schleicher’s work places heavy emphasis on getting current residents to embrace new development by, in effect, bribing them to get with the program.

In his paper, “City Unplanning,” Schleicher calls for “TILTs,” or tax-increment local transfers. The idea behind TILTs is that because new developments generate new property tax revenue, the city can buy off fretful neighbors by giving them a cut of this revenue. The citywide benefits of new development are thus shared with neighbors to the project, but there are no new taxes on development, so costs don’t rise. And while property tax abatements shrink the tax base, TILTs will spur new construction that will increase the overall property tax pie from which taxes are drawn, even after residents in affected neighborhoods get their cut.

Sadly, New York’s mayoral candidates have yet to beat a path to Schleicher’s door. But they should, and so should the mayors of other expensive cities, like San Francisco, Boston, Washington, D.C., and Los Angeles. The lack of affordable housing in America’s most productive cities isn’t just a problem for the residents of those cities, though it is certainly that. It is a problem for the country as a whole. As Ryan Avent argues in his Kindle Single, The Gated City, as people leave New York and the Bay Area and other high-cost regions for low-cost regions, they’re also leaving high-productivity regions for low-productivity regions. In high-productivity regions, skilled workers gain access to knowledge spillovers that allow them to constantly upgrade their skills. Less-skilled workers, meanwhile, get access to affluent customers, who are willing to pay more for service jobs.

If you care about upward mobility and economic growth and the skills mismatch that is contributing to long-term unemployment, you have to pay close attention to high housing prices.

PHOTO: A view from the observation deck of the Empire State Building of midtown Manhattan, Rockefeller Center and Central Park in New York, June 27, 2013. REUTERS/Brendan McDermid

There is a shocking number of one and two-floor buildings, surface parking lots, and other “underutilized” land in San Francisco. You don’t even have to build high-rises in many neighborhoods to increase density and housing opportunities in areas where people want to live. 3-4-5-6 floor buildings are perfectly adequate in many neighborhoods to expand housing options. But sclerotic zoning, bureaucracy, and city politics keep the supply of housing tight.

tmc: actually it’s capitalism in contention with politically-motivated over-regulation, starting with rent control and ending with “affordable housing” mandates that limit investor returns. See San Francisco and Boulder Colorado (which has regulatory limits on housing construction).

Yep, “affordable housing”, that’s democracy for you. It means we can vote for the people that offer the most free stuff. So, again I say American Capitalism and Democracy don’t mix very well (anymore that is).

@blue True, you can increase density by going vertical, but building regulations are so onerous that one incurs costs that drive the price beyond affordability for middle income folks. Here in Colorado, some counties now require the installation of fire repression systems that add another 1%-2% to the cost–as if the frequency of homes burning down has mysteriously increased. Additionally, building codes now require fewer homes per acre, while the average size of a home has increased by 800 sf to 2200–not including the 3 car garage. $25,000 sewer and water taps, permit fees, it never ends.

Add all of these factors together, in addition to increasing material and labor costs, and it’s damn tough for a builder to build any home a for a young family to purchase. Even if they can, they are often so remote, the commuting costs consume any savings. (That being said, consumers also want all the amenities. Formica and carpet is not sufficient–it has to be granite, hardwood floors and stainless appliances. And a 1200 ft, 3 bdrm, 1 bath “starter” just isn’t good enough anymore. Each child has to have their own bedroom, too. We are victims of our own over-indulgence).

We built this entire country over two centuries with minimum government involvement. SF was re-built after the earthquake without any building regulations (look it up) and without rent control (a 1990’s phenomenon to promote affordability–resulting in the most rapidly increasing housing prices in the country due to the lack of new construction.) Interesting how it all got done without government, but now government has to “fix” it.

Only in the last 20 years are we incapable of doing anything without the government dictating every phase of the effort. Interesting that I do not see the old neighborhoods burning down or imploding due to the lack of regulation at the time.

You’re right @COIndependant, and those old neighborhoods will long outlast the new vinyl box neighborhoods. They certainly won’t last a hundred and fifty years like many others in the northeast have. But the future is rent, not ownership. Banksters and corps will have their way, and their cut. Welcome to the USCA.

High New York rent reflects high demand. It’s not infinite. If it gets too high, the demand will shift elsewhere, and the prices will level themselves out. Hipsters find other places to convene. Portland, OR rents go up. SF goes up. Philly goes up. Chicago, Boston, Seattle. All go up. All the property owners around America are happy. Leave it alone. Let New York get expensive.

@Alky and the rents in SF have gotten so high, the wealth has displaced blacks out of their historic neighborhoods. At last review, I think the data shows Blacks are currently at 30% of their population in the 1980’s.

Rent control has forced developers to build nothing but high rent buildings–otherwise, the returns are not there. Again, the Board of Supervisors are behaving like Boulder CO–where government mandates only serve to displace those they (supposedly) intend to help.

(Actually, in the case of Boulder, there is not any low income housing (none!)–it’s a charade promoted by the old money to sustain their property values. Just like opposing big box stores within the city limits sustains values for downtown property owners who would be boarded up if real competition was nearby.)

It’s called Longmont. Bus goes there. And in the case of San Francisco, those poor people didn’t die. They moved to Richmond. Suburb is the new inner city. So poor people now get a yard for their dogs. And rich people get to live closer to their work. Think Lodo vs. Aurora. Win-win. Who cares?